Broadstone Net Lease Inc

NYSE:BNL

Earnings Call Transcript 2020-Q4

[Operator]

Hello, and welcome to Broadstone Net Lease's Fourth Quarter 2020 Earnings Conference Call. My name is Carrie, and I will be your operator today. Please note that today's call is being recorded.

I will now turn the call over to Kevin Fennell, Senior Vice President of Capital Markets at Broadstone. Please go ahead.

[Kevin Fennell, executive]

Thank you for joining us today for Broadstone Net Lease's fourth quarter 2020 earnings Call. On today's call, you will hear from our CEO, Chris Czarnecki; and our CFO, Ryan Albano.

Before we begin, we want to remind everyone that the following presentation contains forward-looking statements, which are subject to risks and uncertainties, including, but not limited to those related to the ongoing COVID-19 pandemic. Should one or more of these risks or uncertainties materialize, actual results may differ materially. We caution you not to place undue reliance on these forward-looking statements and refer you to our SEC filings, including our Form 10-K for the year ended December 31, 2020, for a more detailed discussion of the risk factors that may cause such differences. Any forward-looking statements provided during this conference call are only made as of the date of this call.

I will now turn the call over to our CEO, Chris Czarnecki.

[Christopher Czarnecki, executive]

Thank you, Kevin. And welcome to everyone joining our Q4 2020 earnings call. I hope that 2021 is off to a safe and healthy start for everyone. It's hard to believe that we're almost 6 months past the B&L IPO closing, leading up to and then during the roadshow, we talked with analysts and investors about what they should expect from B&L in the quarters after the IPO. First and foremost, the team communicated a continued intense focus on portfolio management and building on our already-strong collections results from the first 3 quarters of 2020, while also maintaining our high percentage of leased assets.

Next, we communicated an intention to continue executing on our diversified net lease investment strategy with an overweighted focus on industrial, health care, select retail and QSR properties.

Finally, we outlined several capital markets initiatives, including achieving a second credit rating and gaining access to the investment-grade bond market as an important source of future long-term debt capital.

The B&L team tackled all of these objectives in Q4, and into 2021, and I'm very excited to provide an update on the substantial progress we have made since our last call.

As we ended 2020, our portfolio continued to perform well, and our collection results were among the best in the net lease space, coming in at 99% for the fourth quarter. With broad vaccination efforts underway, near daily updates regarding incremental vaccine supply and distribution and reducing case counts across most of the country, we are encouraged that there finally appears to be light at the end of the tunnel. Our collections trends have only continued to strengthen into 2021, and Ryan will provide an update on January and February's results in a moment.

Since the IPO in late September 2020, our team has been acutely focused on deploying the capital we raised into accretive acquisitions. Our investments during the fourth quarter were very complementary to Broadstone's existing portfolio, in terms of the mix of asset types and sourcing channels as well as overall property and lease characteristics. We closed 6 transactions, comprising 19 properties for a total investment of $100.3 million. The weighted average first year cash cap rate was 6.9% for the quarter's investments. The leases include 1.9% weighted average rent escalations and 14.4 year weighted average remaining lease term, complementing our existing portfolio's long lease duration and best-in-class annual rent escalations.

Acquisitions were diversified across our core property types though heavily skewed towards industrial at 77% of the total. The transactions were split evenly between sale leasebacks and assumptions, and we are successful in sourcing opportunities for multiple channels, including add-on acquisitions with existing tenants and repeat transactions with brokers and real estate developers.

I want to briefly highlight 2 of the transactions, representing the largest acquisition in the quarter, we purchased a newly completed 644,000 square foot warehouse in distribution facility, tenanted by a leading contract brewer outside of Minneapolis, Minnesota for approximately $41 million. The property has a remaining lease term of approximately 11 years and 2% annual rent escalations. The company manufactures and distributes beverages for itself and third parties and the facility is strategically located in key to the tenant's operations as it serves as the distribution center for its nearby production and bottling facility.

We also added 7 quick-service restaurants located across 3 states to our existing master lease with Jack's Family restaurants, our second-largest tenant exposure for approximately $13.2 million. The master lease provides for 2% annual rent increases and the remaining term of the master lease was increased to approximately 16 years in connection with the acquisition of these new properties. USR space broadly demonstrated resiliency during the pandemic, and Jack specifically continued to perform well and grow its footprint.

We also made incremental investments in our existing portfolio of properties. In the fourth quarter, we invested $3 million with 2 tenants, which will generate a 7.5% weighted average return. In total, during 2020, we invested $10.3 million in our existing portfolio, on which we will generate a 7.4% weighted average return over the remaining lease term. The timing and size of these investments can be difficult to predict, but we routinely engage our tenant base to source opportunities like these that create incremental value for both the tenant and our assets.

During the fourth quarter, we sold 6 properties for approximately $24 million at a weighted average cap rate of 9.5% on tenanted properties, representing the gain of approximately $1 million over original purchase price. These sales were generally of noncore assets, including several dental clinics that we have been proactively reducing our exposure to over the past several years. For the year, we sold 24 properties for net proceeds of $77.5 million at a weighted average cap rate of 7.7% on tenanted properties, representing a gain of $3.3 million over original purchase price.

As of December 31, our portfolio includes 640 properties across 41 states and 1 property in Canada. The portfolio was 99.2% leased and had a weighted average remaining lease term of 10.7 years, with 2.1% annual rent escalations. Occupancy declined approximately 60 basis points from Q3 2020. This change was primarily driven by short-term leases at 2 of our former Art Van sites expiring during the quarter. We had just 8 vacant assets reported at year-end, 3 of which have now been retendered with leases commencing in 2021, including the largest former Art Van site. Our forward lease maturities are also highly manageable, representing just 0.4% of ABR in 2021 and a total of 2.9% of ABR through 2023.

As part of our ongoing property management process, we evaluate lease maturities and potential expirations on a 5-year forward-looking basis and we'll provide relevant updates as they occur.

Finally, during the quarter, our #1 tenant exposure, Red Lobster, refinanced its large near-term debt maturity which should provide -- should naturally provide the company some additional financial flexibility as it continues to navigate the pandemic and makes progress returning to normal operations.

Our balance sheet remains strong and provides us with significant financial flexibility as we continue to deploy the capital we raised in our initial public offering. The strength of our balance sheet and portfolio outperformance was recently substantiated by S&P as we received an initial credit rating of BBB with a stable outlook in January. This credit rating comes with immediate benefits in the form of reduced interest costs on the majority of our existing debt, primarily our bank term notes and revolving line of credit. A second investment-grade credit rating also further diversifies our funding sources by providing us with access to the investment-grade bond market for future issuance. While we typically experience lighter acquisition volume in the first quarter, following a strong sequence of closing activity at year-end, we are seeing strong flows of potential investment opportunities to take shape as we cross the midpoint of the quarter. The combination of the pandemic's creation of have and have not asset types, with the continuation of near historically low interest rates has certainly enhanced competition, but we continue to source sufficient quality opportunities to support our near-term growth objectives. Ryan will speak more about our formal 2021 guidance in just a moment, but we expect to complete between $450 million and $550 million of new acquisitions during the year.

With ample liquidity and expanded access to capital, our team is highly active in-sourcing and evaluating investment opportunities. We currently have an -- active opportunities at north of $900 million. As I've said before, our diversified strategy and experienced team ensures we have the flexibility to pursue growth, where we find attractive risk-adjusted returns, while also limiting the potential negative effects of disruption occurring within any single sector or with any single tenant. It also affords us the ability to be highly selective within each of our property types. We are reviewing significant levels of opportunities within each property type and naturally instituting greater selectivity in sectors experiencing higher degrees of disruption from the pandemic.

I'm very proud of what our management team has accomplished in our first full quarter as a publicly traded company, and I'm excited by our team's energy and focus on the opportunities we have ahead of us. The current market backdrop requires us to be nimble and sometimes patient, and we remain focused and committed to generating attractive risk-adjusted returns while creating long-term value for our shareholders.

I'd now like to turn the call over to Ryan to go over our results in greater detail.

[Ryan Albano, executive]

Thanks, Chris, and thank you all for joining us today. I'd like to begin by providing an update on our balance sheet and overall liquidity position. We ended the fourth quarter with $61 million of cash after adjusting for the dividend paid on January 15 and currently have full availability on our $900 million credit facility. We carried $1.4 billion of net debt, resulting in net debt to adjusted EBITDARE of 5.15x as of December 31. As Chris mentioned, we received a BBB rating from S&P in January. And as of February 1, the interest rates on our $965 million of unsecured bank term loans decreased by 25 basis points, which represents over $2.4 million of annual interest savings. Our ample liquidity prudent leverage profile, robust internal cash generation driven by our resilient rent collections and access to multiple sources of capital come together to provide significant near-term financial flexibility as we continue to execute on our diversified investment strategy, while maintaining our strong credit profile.

In efforts to offer insight to our robust internal cash generation, I would like to provide further detail on our collection activity as we have effectively returned to pre-COVID collection levels. As Chris mentioned, as of today, we collected 99% of fourth quarter rent, which continues the favorable trend we observed in the third quarter when we consistently experienced high 90% collection rates. Additionally, as of today, we have collected 99.8% and 99.7% of rent for January and February, respectively. As of December 31, we are scheduled to receive less than $1 million of remaining deferred rent. As of February 1, all deferral and abatement periods have ended. The single partial rent abatement we granted in 2020 continued to pay rent as we agreed, and as we did during Q3 2020, we received additional rent for the percentage of sales clause in the agreement, which totaled $0.2 million in the fourth quarter.

Finally, we have not received any additional request for rent relief since the early part of the pandemic.

Before moving on to our financial results, I'd like to take a moment and briefly cover our continued progress in substantial resolution of the assets previously leased by Art Van Furniture. We are happy with the outcome that we were able to achieve with the patient in methodical approach to navigating both the bankruptcy proceeding and long-term asset management strategy related to these assets. We mentioned on our last call that we leased 6 of our 10 assets, representing 71% of Art Van square footage to American Signature in the second quarter under 10-year leases at 72% of prior rents. In the fourth quarter, we leased 1 of the smaller remaining assets to a leading mattress retailer for 134% of prior rents. And subsequent to quarter end, we entered into a 10-year lease for the largest asset, representing 18.4% of the former Art Van square footage for approximately 70% of prior rents upon lease commencement later this year with an experienced regional furniture and mattress operator, who has been in business for over 80 years.

We are currently pursuing re-leasing and sale opportunities for the final 2 assets, which only represent 9.5% of former Art Van square footage or less than 0.3% of our total ABR, and we consider the Art Van matter to be effectively resolved.

Now turning to our Q4 financial results. We reported AFFO of $46.9 million in the fourth quarter, representing $0.30 per diluted share. While in line with our expectations, this is a decrease on a per share basis when compared to Q3. This is primarily attributable to the additional shares issued in connection with our IPO, coupled with the full impact of additional public company costs, which were partially offset by $1.4 million of interest savings from debt repayment. These results reflect the first full quarter of per share performance since the IPO, especially considering the late December closings for nearly all of the Q4 acquisitions from which we expect to see full earnings contribution beginning in Q1 2021.

In our view, Q4 per share results provide a post-IPO run rate estimate of the business and serve as the basis for performance comparison as we execute on our growth plan. For the fourth quarter, we incurred $8 million of cash G&A expenses in $9.2 million of total G&A. The sequential increase in cash G&A was largely driven by a full quarter of public company costs notably, including D&O insurance as well as incremental expenses from performance-related compensation.

As previously discussed, we expect to continue achieving economies of scale with respect to G&A expenses over time as our portfolio growth outpaces our cost structure. As we have continued to ramp our acquisition pipeline and gain clear insight into operating expenses after the IPO, we are providing initial guidance today for 2021 that we expect to refine during the course of the year. For the 2021 full year, we expect to report total AFFO between $1.27 and $1.33 per diluted share, which represents an implied growth rate of 5.8% to 10.8% compared to what we consider to be our run rate view of 2021 based on our Q4 per share results annualized. This guidance is based on the following key assumptions: acquisition volume between $450 million and $550 million, disposition volume between $50 million and $100 million and total cash G&A expenses between $32 million and $35 million. It's worth noting that our per share results for the year are particularly sensitive to both the timing and amount of investment activity, dispositions and capital markets activities that occurred during the year.

Finally, at our February 19, 2021 board meeting, our directors set a $0.25 distribution per common share in OP unit to holders of record as of March 31, 2021, payable on or before April 15, 2021. We will evaluate future increases to our dividend with our board as we continue to grow our earnings base and intend to target a long-term AFFO payout ratio in the mid-70% to low 80% range.

With that, I will turn it back over to Chris.

[Christopher Czarnecki, executive]

Thanks, Ryan. I'll end our prepared remarks by reiterating that we remain excited by the opportunity set in the market and the expanded capital market tool set at our disposal. Fourth quarter continued to prove the quality of our strategy and demonstrate our ability to execute over the long term. We are focused on continuing to deliver positive results for our shareholders with an emphasis on long-term value creation and attractive risk-adjusted returns. I'm incredibly proud of what the B&L team's hard work and look forward to a great 2021.

This concludes our prepared remarks. Thank you for your time and attention this afternoon. Operator, you can now open up the line for questions.

[Operator]

[Operator Instructions] The first question is from Caitlin Burrows of Goldman Sachs.

[Caitlin Burrows, analyst]

Acquisitions in the quarter were healthy volumes and cap rates in sectors that I think a lot of investors want to be in, industrial, QSR, et cetera. So can you just give some more detail on how you sourced the 6 transactions in the quarter?

[Christopher Czarnecki, executive]

Yes, it's Chris. A couple of notes around that. I think our sourcing was very well diversified during the quarter. One of our larger industrial acquisitions was with the developer that we had transacted with before. So that was fairly natural for us. The QSR transaction was with an existing tenant that we have been looking to expand with over time. Also, on the health care front, that was within an existing tenant as well. And then one of the other industrial transactions was one that we had started working on prior to COVID outbreak and then the seller chosen and put it on the shelf and came back to the market. So we were sort of first in line to reengage on that matter. And then also working the brokerage network as well for one of the smaller industrial opportunities. So very broad sourcing in that regard.

[Caitlin Burrows, analyst]

Got it, okay. And then thinking after 2021 guidance assumes $500 million of acquisitions at the midpoint. How does this compare to your historical average acquisition activity? And how is the pipeline that you see today compared to historical levels? I think you mentioned in the prepared remarks that it was about $900 million. Now I was just wondering how that compares to what you've worked on in the past?

[Christopher Czarnecki, executive]

Sure. I think the $500 million at the midpoint is fairly consistent with our call it, 5-year historical average. If you think between 2015 and 2019, excluding 2020 for obvious reasons with the IPO and whatnot. So feels like that's a very accomplishable number given the quality of the team and the depth of their relationships. Sitting here today, first quarter can occasionally be a little bit quieter, but we feel like the opportunity set in that $900 million range that I referenced is certainly a point in time what the team is working on. But it's really nicely diversified across virtually all those property types are focused on select retail, the medical, industrial. And so from our perspective, that's a very good sign with just the amount of opportunities for us to work on and to keep our selectivity high and keep our focus where it needs to be. So I'm feeling good about where that is at the moment.

[Caitlin Burrows, analyst]

Got it, okay. And then maybe last one. Just on the G&A side. I know you guys touched on how there were more public company costs. As you think about 2021 and then also going forward, would you say that the increase versus the second half of '20 is just due to those public company costs? And then when we go out further, do you think then it should be more stable, or how do you see that growing or not over the next, call it, 3 years?

[Christopher Czarnecki, executive]

Sure. I'll give you sort of the quick increase in capacity longer term. The biggest increase we saw from a public company cost was our D&O insurance, that drove a lot of it. We did sort of guide towards where we thought G&A would be in Q3. Obviously, with that information, but the increased D&O cost is a one that is factored in there now. So I think that helps the estimate. And then, Ryan, do you want to talk longer term?

[Ryan Albano, executive]

Sure. In terms of 2021 and maybe longer term, the way we're thinking about it is we're right in line with what we communicated during the Q3 call, where we're looking at cash G&A and the $8 million a quarter mark, give or take. So we came in there for Q4 and what we realized. And then that kind of carries through our guidance as we think about 2021 as a whole. As we migrate into a longer-term view, I would say probably incremental in the sense of G&A, we certainly expect our overall top line to far outpace the growth in G&A as we move forward here with only sort of incremental cost add as we migrate into the longer term.

[Operator]

The next question is from Anthony Paolone of JPMorgan.

[Anthony Paolone, analyst]

Your health care vertical is fairly unique. You don't hear as many of your net lease peers talking about that as a focus point. Can you just talk about just the opportunity set there and yield how big that could be over the next 12 months do you think that deal for?

[Christopher Czarnecki, executive]

Sure. So -- and I think you know this, Tony, but for the benefit of everybody, we do have a focus on health care. It is a little bit more niche-oriented being either hospital affiliated gross campus or large regional physicians' groups and then some adjacencies within there. It's one that if you look at our historical volume does move around a little bit. The transactions we did in Q4, the one transaction was with an existing tenant, some of the transactions we're working on in Q1 are with existing tenants, who are in that large regional physicians group, a specialist area of focus where they are growing their practices. There are some portfolio opportunities that we're also currently contemplating as well. Cap rates somewhere in the mid 6s, maybe a touch of in that for certain circumstances as well. And again, it's one of an opportunity set that does flex up and down. And at the moment, there's certainly a number of interesting transactions that we're contemplating in there.

[Anthony Paolone, analyst]

Okay. And then just my other item, I want to touch on is maybe for Ryan. You mentioned the percentage rent number in 4Q, and I didn't write it down fast enough. But also, just if you could help us just like what happens with that as we kind of roll forward and how to think about whether that stays or how that was structured to think it's related to abatement?

[Ryan Albano, executive]

Sure. In terms of that percent rent number. The last time we really see it is in Q4 show up. The abatement itself burned off in January. So we shouldn't see that going forward. And I'd say it was fairly incremental during Q4.

[Anthony Paolone, analyst]

Okay. Sure. We're thinking about like roll in the run rate, we don't have to really make an adjustment for that so much just use kind of the base rent that you guys laid out?

[Ryan Albano, executive]

Correct.

[Anthony Paolone, analyst]

Perfect. And the other detail was just any order of magnitude or dollar amount around what the annualized incremental rent is from backfilling the Art Van process?

[Christopher Czarnecki, executive]

That was done at -- the large site that we released was done at 70% of prior rents. I'm struggling to put a dollar figure on that for you. I'm sorry, off the top of my head, but maybe we can follow-up with that to you. Ryan, I don't know.

[Ryan Albano, executive]

No, we can follow a dollar amount-wise. But as I think about it, the 6 out of the 10 that we had initially released that we talked about in the last call was about 72% of previous rents. The one smaller location that we released during Q4, again, pretty small and nominal nature, but we released that at about 134% of prior rents and then the larger asset that we released at the -- after the end of the quarter, we released at 70%, as Chris has mentioned.

[Operator]

The next question is from John Kim of BMO Capital Markets.

[John Kim, analyst]

Just given the rise in interest rates, I'm just wondering if retail or other sectors become more attractive to you? Or if there's a risk that acquisition volume is lower than expected? Or are you just willing to take that narrow spread right now?

[Christopher Czarnecki, executive]

Sorry, could you just repeat the last piece that's got a little choppy for me, John.

[John Kim, analyst]

Oh, sorry. Are you willing to take the more narrow spread between interest rates and cap rates in this current environment, or do you look at other asset types outside of industrial as far as the weighting of your acquisitions?

[Christopher Czarnecki, executive]

Yes. I think that's sort of maybe fundamentally, the -- what I view the strength of our model is the ability to selectively move between some of the property types, depending on where competition is most robust. So I think it's -- you probably heard this enough over the last few weeks from some of our peers that industrial competition today is quite robust, and that's even more for probably more generic distribution than anything else. But the ways we fight against that to try to keep our spreads strong as one is certainly thinking about adjacencies within the industrial space that we have the ability to do and have done before. So looking at some food processing opportunities at the moment, which we've done in the past, and those are ways to keep our spread a little bit stronger. And then as you alluded to, we can also pivot to some of our other asset classes where we think there's a better risk-adjusted return. So certainly thinking about that with regard to health care and select retail opportunities, which at the moment are a little bit bigger part of our Q1 view, but then ultimately still see the ability to add solid industrial and QSR a little bit later in the year as well. So Ryan, I don't know if there's anything I should throw in there. So...

[Ryan Albano, executive]

.

And maybe if I could add to that, I would just say that we certainly contemplated some of that in our guidance and how we thought about the world. And frankly, we feel very confident in the full year number and the guidance given on the acquisition front, knowing that borrowing costs or interest rates in general could be a little bit higher in compressed spreads in certain areas, as Chris mentioned, say, industrial or whatever, but we feel very confident in those numbers given the -- our diversified investment strategy and our ability to source in different areas where spread compression has less of an impact.

[Christopher Czarnecki, executive]

That's great. That's well said, and the confidence in the guidance is strong from us, so especially where we sit today.

[John Kim, analyst]

Okay. And you guys mentioned the timing of the acquisitions and sales would impact your earnings this year? As well as the seasonality and acquisitions, which tends to be in the back half of the year. But I guess, 2-part question. One, is there anything that you could do on your side to change that seasonality, or is that more from the seller's point of view? And also if you could provide any more color on whether or not the pace of acquisitions and dispositions will be spread evenly beginning in the second quarter or more towards, again, the second half of the year?

[Christopher Czarnecki, executive]

Yes. So changing the seasonality, I wouldn't go too far into the seasonality component. I mean, it exists, and first quarter is probably the one where you see a little bit the most I think for us, it's maintain a vibrant pipeline at all points and thinking about it in the long term, also working on forward commitment opportunities, especially with tenants that we already know and part of their puzzle for future growth as well, and we're doing some of that, and that gives us longer-term visibility into the pipeline. What I'd say in terms of where we sit today, feeling good about the guidance at a moment ago. But in terms of timing, it certainly has some near-term impacts on AFFO if timing is more back weighted, but really concentrated on the long-term and our guidance and with respect to the midpoint of our guidance has a slight weighting towards the second half, but really keeping the business focused on the long term. So we've incorporated that into our thinking just based on our best estimate of where we sit at the moment.

[John Kim, analyst]

Okay. And my final question. Chris, you mentioned in your prepared remarks that when you're at the 6-month anniversary of your IPO, which coincides with the expiration of the lockup restrictions. Do you have any indication of what percentage of the owners of the long-term owners versus those more likely to sell upon the expiration date?

[Christopher Czarnecki, executive]

Sure. So I think it's a very diversified shareholder base. It's 4,000-plus individuals and hundreds of hundreds of wealth managers. We have worked very hard to stay in close contact with them over the period as we do with our new institutional shareholders. We had a specific meeting run through January to talk about all the progress we made. I think the general feedback plus, people are feeling positive and appreciated that we were guess, doing for the headline last night of executing our business plan and seeing the progression in what we are doing. So not specific thoughts around any changes in the shareholder base. The entire group is very important to us, and we want to provide them as much clarity on the future business as we can and expect them to be long-term holders. I don't know, Ryan, is there anything else you want to put in there because you're part of that with me as well?

[Ryan Albano, executive]

No, I think you sum that up well, Chris.

[Operator]

The next question comes from Vikram Malhotra of Morgan Stanley.

[Vikram Malhotra, analyst]

Just maybe going back to the acquisitions, both on the industrial and health care side. Can you maybe just walk us through kind of -- it just seems broadly acquisitions that's picked up across the board, public-private net lease, even other participants. What sort of competition you're seeing in both segments? What are your expectations kind of for pricing through the year? And just any differences that you're seeing between the 2 segments?

[Christopher Czarnecki, executive]

Sure. Yes. I think there certainly is a number of folks continuing to take a look at the net lease space. In many ways, it is one of the more investable spaces in the real estate market today just with less uncertainty around some of the business constructs. For us, we're looking at a pretty broad range of transactions and obviously, a broad and diversified set of acquisition opportunities. So that leads to different competition, different competitors in segments. Industrial, we've seen, certainly, private buyers are beating our institutional buyers compete with us on transactions to the extent that we obviously know who the competitor is. More on the QSR and select retail front, you tend to see more of the specialist within the public REIT space be there for us as a competitor. On the health care side, because we do have a more niche focus there. I think we don't see as many public REITs involved there, but tend to see more private buyers and more private aggregators of health care assets. So that's a little different. More broadly, I'd say, actively thinking about transactions between -- and sort of close 6% to 7% cap rate range, feel like we can be very effective at the mid-6 zone, plus or minus on each individual transaction, and that's generally how we're thinking about acquisitions at the moment.

[Vikram Malhotra, analyst]

Okay, great. And then can you just remind me -- I may have missed this earlier, sorry. But within the guidance, what is sort of expectations for occupancy through the year?

[Christopher Czarnecki, executive]

Sure. So occupancy, as I said in the opening remarks was down about 60 basis points, but we'll sort of be reverting all other things being equal with the leasing of the large Art Van site in Chicago, which was about 45 basis points of the change, plus some other leasing we've done. So we would see occupancy being fairly robust. I don't know, Ryan, if we have a specific thought around the exact number that's good to the model. Ryan?

[Ryan Albano, executive]

Sure. In terms of guidance and just thinking about it from a modeling perspective, we use an assumption of 50 basis points on cash rent. In terms of occupancy leakage or vacancy and such. I think that feels comfortable with where the portfolio sits today, our general rent collections and so on. We've historically run inside of that, probably close to about 40 basis points. So...

[Christopher Czarnecki, executive]

Where collections are for January and February being just, what, 20 basis points shy on perfection. That's appropriate for the moment.

[Vikram Malhotra, analyst]

And then just lastly, to clarify. Remember, last time you outlined, and it sounds like this time as well, you don't need kind of external capital necessarily to kind of get these acquisitions done. But assuming kind of you see a lot more volume over the next 12 months, it's higher than you anticipate. Can you just talk about in an event where the volumes are just much higher how are you thinking about funding?

[Ryan Albano, executive]

Sure. I think you are absolutely correct. As we think about the full year guidance and the plan that we've outlined, we can accomplish that without necessarily additional capital. As we progress forward and if the if the opportunity set arises and we would exceed those numbers. We'd certainly come back to the market for some additional capital. The way that we're thinking about it is, obviously, we'll be looking to put an ATM in place. In the near term, I'd say certainly sooner than needed so that it is a tool that we could use. And certainly, depending on the size of the capital, we can think about the other avenues to that capital, whether it be follow-on offerings or so on.

[Operator]

The next question is from Michael Gorman of BTIG.

[Michael Gorman, analyst]

I was thinking about this, that you're coming up on the 6-month anniversary, but obviously, you have a much longer track record in your time as a private company. And if I think about the inverse of the interest rate question, and as you think back, whether it was the taper tantrum in 13 or the run-up in the 10-year in 2016. When you -- do you see more acquisition opportunities? Are you seeing more disruption in your acquisition opportunities when there is that kind of volatility in the borrowing market where maybe some of your competitors can't get financing, and so you get better looks?

[Christopher Czarnecki, executive]

Not that's -- it's funny. I was actually thinking something along those same lines this morning and getting ready for the call. What I would say is, and thinking back to the taper tantrum, and I remember that very explicitly is that volume at that time was a little bit disjointed, and people kind of waited to see how their cost of capital shook out. So I think that slowed the market down. In 2016 and then more rise in rates, I don't specifically recall there being a huge disruption volume. And what I actually think is really the more impactful component around cap rates and opportunities as the supply-demand component, and how many players are in the market at any given time. I think you do lose some of the smaller buyers when there is an inflection in debt cost of capital. And that is on the margin incrementally better for us because we do have -- and are happy to do $5 million and $10 million acquisitions, and that's been part of our bread and butter. But I don't think it changes the bigger macro picture of well-capitalized institutional buyers, who are thinking more long-term and are able to lock in some of their cost of capital early. So I think it's just a little bit of a push and pull, depending on the situation there. But if there was an opportunity to be a little bit more acquisitive because some others pulled that we're all excited about that and have the team to do it.

[Michael Gorman, analyst]

No, that's great. And then Chris, just kind of following up, as you talked about, you do kind of have a specialized strategy in some of the property types. And I wonder if -- as you've been a public company now for the past 6 months and kind of getting the story out there and being maybe a little bit more visible. Do you find more opportunities seeking you out in terms of acquisitions, whether it's the specialized health care facility people that are more aware of Broadstone as a buyer of properties in their space?

[Christopher Czarnecki, executive]

I think that's an observation that our acquisitions team is starting to, I'd say, absorb or feel a little bit. And I think we were always seen as a very credible BOE as a private company. But I think it doesn't hurt to have the incremental eyeballs on us to use the term as being a public company. It is very clear that we have greater access to capital in our proverbial toolkit. That was a big part of the going public discussion for us with new and old investors, was being able to do some of the capital markets transactions that we've talked about such as the ATM overnight, the high-grade bond market, now that we've got the second grading. So those things are a little bit less of a discussion point. So I think that only builds over time as we continue to execute on our strategy. But I'd say the acquisitions team, especially when they're doing sort of interviews and whatnot, have at least seen a little bit of incremental value in us being public and having a little bit more of a name brand.

[Operator]

The next question from Ki Bin Kim of Truist.

[Ki Bin Kim, analyst]

Can you just talk about the nature of some of the industrial assets you're buying and the reduceability of those assets, should there ever be a turnover? Because I assume the more around the mill distribution warehouses, seem like Tangoe boxes with good parking coverage may have different risk characteristics than a manufacturing plant that might have more tenant specific build-out.

[Christopher Czarnecki, executive]

Yes, absolutely. I think since we did a couple of industrial acquisitions, I think, as you said, the warehousing space is more generic and serves a more obvious client base. I think what you get into is something that we pay a lot of attention to. So one of the smaller industrial acquisitions during the fourth quarter was a manufacturing and warehousing facility. So you've got a little bit of shared space there. And it's there, you're focused very closely on the broader market. What other types of users are available for that space. And I think there can be a slightly small user base, but you've got to both have confidence in the tenant, and who you're buying in their operational capacity there, but you also got take the broader look of the real estate fundamentals. And try to think through who is the next user if you did have a change over there. So for us, it's really just about balancing those 2 things and sort of taking it back to our broader focus of not if you're real estate buyer, not if you're a credit buyer, trying to balance those things and make sure they're reasonably in check with each other. And I think it varies asset to asset. I don't know, Ryan, is there anything else you jump in there with?

[Ryan Albano, executive]

No, I think that's a good summary.

[Ki Bin Kim, analyst]

Okay. And in terms of your balance sheet, what are your plans for getting a second credit rating? And if you did get one, is there any kind of tangible benefit to the spreads that you're getting from the market?

[Christopher Czarnecki, executive]

Sure, Ryan, do you want to take that one?

[Ryan Albano, executive]

Sure. So we just recently did get that second credit rating from S&P. And it came in at a BBB flat. So a notch up from where Moody's currently has us. It does provide certainly interest savings immediately on all of our bank term debt, roughly 25 basis points on in-place debt today as well as savings on our revolver as we use it. So certainly in place benefits and also now provides us with increased access to capital via the public bond market and so on.

[Ki Bin Kim, analyst]

Yes, sorry about that. I thought that was the first rating. And any plans on timing for having the unsecured bond market?

[Ryan Albano, executive]

Sure. So where we see things, certainly, it's an attractive market today, especially from a cost of debt perspective and thinking about what that is versus our current cost of debt, it's certainly attractive. What I would say is we don't really have a need for it in the near term, certainly evaluating whether there's something opportunistically to do the balance sheet. But frankly, I think where it will come in to place will be potentially later in the year, as we think about putting capital to work in deployment into acquisitions on the line and then looking to take that out into longer-term debt such as the public bond market. So probably not in the first half of the year, more likely something that would be accessed later in the year.

[Operator]

The next question is a follow-up from Caitlin Burrows of Goldman Sachs.

[Caitlin Burrows, analyst]

I know you talked a little bit before about occupancy, but I was wondering if you could go through what additional credit events, if any, are assumed in guidance, whether that's bankruptcy assumptions, bad debt levels, and how that would compare to a 2020 or 2019 actual results?

[Christopher Czarnecki, executive]

So Ryan, do you want to take that?

[Ryan Albano, executive]

Sure. So in guidance, we don't have any specific credit events layered into it. What I would say is that we do have a 50 basis point vacancy assumption on or occupancy -- vacancy assumption on in-place cash rents. So we've historically run somewhere inside of that, call it, closer to 40 basis points. But we've layered into the guidance and our thoughts around it from a modeling perspective, about 50 basis points.

[Christopher Czarnecki, executive]

And nothing specific.

[Caitlin Burrows, analyst]

Okay. Got it. And how that relates to what you mentioned before. Okay. And then I know it's not a target kind of acquisition property type right now, but could you give an update on what you're hearing from office tenants? And are there some properties you could look to dispose of in advance of lease expirations that are in place?

[Christopher Czarnecki, executive]

Sure, absolutely. So as you'd expect, continuing to maintain a very close dialogue with our office tenants. And as you noted, it's not an acquisition focus for us at the moment. I think what we continue to hear is that there's variability in their thinking, and they're continuing to evaluate sort of the return to work on a more fulsome basis. And that discussion is obviously more real today than it was a quarter ago. So for us, we continue to stay close, see how they're monitoring. Nothing specific on the near-term from a sale perspective. And ultimately, I think the only matter that we've talked about before is the nationwide office to pack that we have that they will not be returning to their office after the pandemic, but we have 7-ish years of rent, it goes out to 2028 with them. And so if there's an advantageous solution for us with respect to that property, we will certainly consider it. But right now, it's just dialogue with the tenant about what they plan to do and how they maintain the building. And then more generally, to the office portfolio, just from a position of strength, again, we continue to have the ability to be thoughtful about if the portfolio as a whole, only about 10% of the gross ABR, strong -- very strong credit profile for there for us in 7.5 years of term. So we have the ability to be patient a thoughtful as people think through their return to work on a more global basis. So that's where we sit for the office.

[Operator]

And this concludes our question-and-answer session. I would now like to turn the conference back over to Chris Czarnecki for any closing remarks.

[Christopher Czarnecki, executive]

Great. Thank you for all the attention and questions today. Very much appreciate everybody joining the call. We are, as I said, very excited about what 2021 will bring from a growth perspective for Broadstone Net Lease. I feel like our portfolio is in excellent shape, and the team is focused on and all of the things that will deliver a great set of results for our shareholders, and we look forward to catching up with everybody soon. Thank you so much. Have a great day.

[Operator]

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines. Have a great day.